Sources: Trump administration to take action against China

The Trump administration is preparing to take action against China over trade as soon as this week, two administration officials familiar with the issues told POLITICO.

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President Donald Trump will soon call on U.S. Trade Representative Robert Lighthizer to open an investigation against China under Section 301 of the Trade Act of 1974 for violations of U.S. intellectual property rights and forced technology transfers.

As POLITICO reported earlier this week, senior Trump aides held a series of high-level meetings in recent days to finalize the decision, which is the culmination of three months of regular huddles on trade.

Trump’s aides have been deeply divided on trade, with top trade adviser Peter Navarro and chief strategist Steve Bannon calling for aggressive measures even as others like National Economic Council Director Gary Cohn have urged caution. But an administration official said the decision to launch a Section 301 investigation won broad support among the president’s ideologically diverse staff.

"We found a sweet spot,” one administration official said.

An announcement is expected late this week, but an official cautioned it could slip into next week.

Trump has grown increasingly frustrated with China in recent months, fuming in public and in private about what he views as the country’s unfair trade practices. He has separately complained that China isn’t doing enough to stop North Korea from developing a nuclear weapon capable of striking the United States.

The pending decision would dramatically escalate tension between the United States and China — and it could result in steep tariffs on Chinese goods.

U.S. companies have complained they are often forced to share valuable technology with Chinese counterparts as a condition of doing business in the country. Section 301 allows the U.S. to impose unilateral duties against countries that impose barriers to U.S. exports.

Any administration action would give Lighthizer a leading role in a lengthy investigation that could peer into all aspects of Chinese industrial policies and potentially result in unilateral U.S. trade sanctions. As talk of the possible move circulated this week throughout the trade community, the trade representative’s press office has remained mum.

Frustration that China is not doing more to persuade North Korea to rein in its nuclear program seems to be motivating the administration to fire a shot across the bow on the trade front, one source said. Many in the business community are likely to silently cheer the action as long overdue, but others may be worried about a further souring of the business environment and possible Chinese retaliation, a second source said.

The Commerce Department is separately completing its own investigation into steel imports that could result in additional actions against China. That investigation is ongoing and likely won’t be unveiled this week, sources said.

Section 301 has not been widely used since the creation of the World Trade Organization in 1995, when the United States began to litigate disputes through the Geneva-based body rather than take through unilateral action. However, it remains on the books as a potential tool.

Aggrieved industries can file a petition asking for an investigation into unfair trade practices, or the USTR can self-initiate a probe. Once the trade agency makes a finding of unfair trade, it would be empowered to seek a negotiated settlement – backed up with the threat of possible retaliation if no deal is made.

Lighthizer is well-versed in the tool from his previous stint at USTR during in the 1980s during the Reagan administration, when it was used on a number of occasions.

Meanwhile, Senate Minority Leader Chuck Schumer (D-N.Y.) and other Democrats are set to roll out new trade legislation Wednesday with a special emphasis on stopping China and other countries from cheating on trade rules and manipulating markets for an unfair advantage.

Schumer has repeatedly goaded Trump to make good on campaign promises to get tough on China. On Tuesday, he urged the president to punish Beijing for its failure to stop North Korea by blocking it from making any further purchases of U.S. companies. "If China does not change its posture, the U.S. should take clear and firm action to seek to ensure China’s cooperation,” Schumer said.

The Democrats’ new bill is part of their effort to convince voters they can offer "a better deal” for the middle class than the Republicans can under Trump.